pension and tax allowance

dryjointdave

Hello, i am a 68 year oap living on the state pension, a private pension and occasionally dipping into our savings. My wife is 59 and was made redundant about 10 years ago, and does not have any income at all. The marriage allowance rule, allows her to transfer £1190 of her personal allowance to myself to reduce my tax. I am a lower rate tax payer with a modest pension. In September my wife will be 60 years old and she intends to take her private pension as a lump sum, about £40,000 before tax. We plan to add this to our savings to supplement our income. Do we need to do anything about the marriage allowance and if so, when. Thanks

Dazed_and_confused

Are you Scottish resident for tax purposes?

What do you mean by lower rate?

Starter rate?
Basic rate?
Intermediate rate?

GunJack

Giving the taxman around £6k if she takes it in one go is not such a good idea...why not take it over 4 years, then no tax to pay and 4 years closer to state pension??

dryjointdave

English, living in South Yorkshire
Basic rate tax payer

dryjointdave

£10,000 per year for 4 years, would that mean no tax to pay, even if i still had her personal allowance

molerat

Next year the allowance is £12500 so £11250 after giving her 10% away. She may be able to take £15000 tax free - £3750 tax free lump sum and £11250 subject to tax but inside her allowance.

Dazed_and_confused

If that is her only income it won't have any impact on an existing application for Marriage Allowance i.e. it would still be valid providing neither of you became higher rate payers.

She would have to pay tax on any taxable pension income over £11,250 (her reduced Personal Allowance) and as the Marriage Allowance recipient you would still get £250 knocked off your 2019:20 tax bill.

She could always cancel it from the end of this tax year and have a normal Personal Allowance and you would pay £250 more tax but you/she need to decide how you are going to take the pension income before anything else.

If it is £40k before the TFLS that leaves £30k taxable so if it is taken all in one go she will have £3.5k-£3.75k tax to pay overall depending on what she does about the Marriage Allowance.

enthusiasticsaver

I would not take that £40k in one tax year. Can she not take 25% in the next 4 years? She will still have enough PA to keep the marriage allowance.

enthusiasticsaver

dryjointdave wrote: »

£10,000 per year for 4 years, would that mean no tax to pay, even if i still had her personal allowance

You only have 10% of her allowance. I have done the same with my DH and will just keep my income to below the PA less 10%. Why pay almost £4K in tax?

dryjointdave

I think the best way forward is for me to keep the marriage allowance and for my nearest and dearest to take her private pension over 4 years.Hope she doesn't drop dead in the meantime . I'll have to look into that, LOL